When the special master overseeing a city court-ordered agreement to provide thousands of homeless shelter beds made a spot check at a South Los Angeles shelter she was disappointed in what she found.
The shelter in the parking lot of the historic but shuttered Lincoln Theater in South Los Angeles is a bare-bones affair: gray tents pitched on wooden platform in rows on two parking lots. The homeless services provider Urban Alchemy has a $2.3-million contract to provide 88 beds there.
But on her visit in June, special master Michele Martinez saw tents on only one parking lot. On the other were 44 bare platforms.
Opened in 2022 as part of the city’s Project Homekey response to the pandemic, the shelter on South Central Avenue has now fallen under scrutiny as an example of poor financial controls in the homeless services system.
During a court hearing Wednesday, U.S. District Judge David O. Carter, who is overseeing the agreement, said he sensed fraud, and chided the city for what he perceived as a lack of curiosity over the discrepancy.
“Is the city’s position when the special master notes obvious fraud and that the documents don’t match, that you are bringing forth to this court that Ms. Martinez should disregard that and not report this to the court?” he asked the attorneys representing the city.
A spokesman for Urban Alchemy said it removed the tents after being put on notice by the city in April 2024 that budget cuts were coming. As a result, the contract for the 2024-25 year was reduced to $2.3 million from $3.1 million. L.A. City Administrative Officer Matt Szabo did not immediately respond to a Times email asking for an explanation.
“Urban Alchemy’s No. 1 priority is providing the highest level of services for our guests,” the spokesman said. “At this site in particular, given the resources provided, we have consistently helped as many guests as possible have a safe place to sleep and get better connected to services and support.”
After the Los Angeles Homeless Services Authority renewed the $2.3-million contract for 88 beds for this fiscal year in May, LAHSA spokesman Ahmad Chapman said the city reduced the contract budget to $1.2 million for 46 spaces. Those terms came into effect in July.
“The decision was ultimately made by the City,” Chapman said in an email.
But the shelter was at the reduced level long before LAHSA approved the 88-bed contract in May.
LAHSA Commisisoner Justin Szlasa, who visited the shelter in May as a random spot check on the day he was to vote on $400 million in new homeless services contracts, found it disturbing.
The agenda item described it as low-cost and high impact, “which is exactly the kind of program I think we want to fund,” he said. What he saw so alarmed he wrote about it on his LinkedIn page.
“Documents from LAHSA showed Urban Alchemy was paid the full $2.3M to run the project,” he wrote. “This works out to $5,603/per month or $186/per night for each occupant living in a tent in a parking lot,” he wrote.
“I am concerned this Safe Sleep program—which I happened to arbitrarily spot-check—is not an outlier,” he wrote.
On Wednesday, Carter, who is overseeing the case, took the report as evidence of the mismanagement he has railed about for years.
Over the five years he’s presided over the case, Carter has frequently stated his conviction that much of the hundreds of millions of dollars spent on homelessness programs is not reaching the people for whom it is intended. Last year, he ordered an audit that found inadequate data systems and financial controls, leaving the system vulnerable to waste and fraud.
The city reported its 88 slots on a list of more than 7,600 beds it is providing under a court-ordered agreement with the county called the Roadmap MOU.
After finding half of them missing, Martinez emailed the city attorney’s office.
“Can you confirm whether Urban Alchemy reports that all 88 slots are open and occupiable in alignment with the city’s quarterly reporting,” she asked.
In a reply, an attorney for the city told Martinez that she had no business asking. “The Special Master has no authority or basis to review or provide any assessments of the City’s compliance with the City-County Roadmap MOU,” the email said.
The city was drawing a distinction between the 2020 Roadmap MOU, a city-county agreement to provide thousands of new shelter beds, and the city’s 2022 settlement agreement that requires more beds and thousands of tents, shelters and vehicles to be removed from the streets. Martinez is special master for the settlement but not the Roadmap.
Carter said there is no distinction in the court’s oversight.
“You’ve taken the position that my monitor is inappropriately monitoring these sites when the city is not,” Carter told the lawyers from the Gibson Dunn law firm representing the city. “I’d like to hear your position on that and especially when fraud is discovered, if she’s to close her eyes to this, because this is by order of the court and it appears to me that you’re trying to limit her duties, which quite frankly would be contemptuous.”
“And she’s going to report obvious fraud. Am I clear about that?”
“That is a hundred percent fine, your honor,” Gibson Dunn attorney Bradley Hamburger replied. “We’re not suggesting otherwise.”
Szlasa, the LAHSA commissioner, said the Central Avenue shelter exposes an issue he finds endemic in the contracting process of the joint city-county agency that administers city homelessness funds. (Los Angeles County is in the process of backing out of LAHSA.)
“They look at the contracts and the invoices but they don’t verify that what happens on the ground matches the contract,” he said in an interview. “I need to understand how that works. That process is core to LAHSA. If that is not working effectively and it doesn’t appear to be, we need to get to the bottom of that and make sure it is.”
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